Taiwan’s thaw with China turning to slush

TAIPEI, Taiwan — For decades, relations between Taiwan and its giant neighbor China have been one of the great success stories of the ending of the Cold War. Slowly but surely, the two nations have pulled back from half a century of bellicose confrontation and in recent years embraced a level of political and economic cooperation that seemed to promise new riches for both.

But today, for many Taiwanese, the bloom is off the rose. This disenchantment lay behind the outbreak of angry protests from Taiwanese students that are in their third week. And Taiwanese President Ma Ying-jeou is scrambling to placate a restive electorate.

Hundreds of students stormed Taiwan’s legislature March 18 and have occupied it since, draping signs denouncing a free-trade pact with Beijing and posting caricatures of Ma around a portrait of Sun Yat-sen, the founding father of the Republic of China, the official name of Taiwan. Others have tried to break into the central government headquarters, clashing with police who repelled them with water cannons and batons.

No one questions the benefits of lifting the half-century long threat of military conflict. And almost everyone acknowledges that there are advantages to Ma’s policy of stepped-up cooperation. Today, 118 airline flights a day link Taiwan and 54 cities in China, many packed with Taiwanese businesspeople going one way and mainland tourists going the other. Seven years ago, there were no such flights.

But for Ma’s critics, the benefits have fallen far short of expectations. Although China’s economy continues to grow briskly, Taiwan’s economy has stagnated; incomes have barely budged while housing costs have soared. More Chinese tourists come to Taiwan, but the massive new capital investment that had been expected from the rapprochement with Beijing has largely failed to materialize.

And, like the United States, Taiwan has seen thousands of good jobs move offshore, most of them to China. University graduates in particular complain that there aren’t enough decent jobs for them.

“They are stealing our jobs,” said Godwin Wang, an assistant vice president at Farglory Free Trade Zone Co., which provides air cargo and other services to importers and exporters. Farglory’s warehouse space by the airport is half-full, he said days before the students took to the streets. “We are suffocating.”

Many Taiwanese also worry about becoming too dependent on China and ultimately losing their autonomy and freedom to rule themselves without interference from Beijing.

Clearly, China is not responsible for all of Taiwan’s economic problems. As a trade-dependent nation, it has been hurt by weak global demand since the Great Recession, including the slow recovery in the United States and other large markets.

What’s more, many experts say that Taiwan is hampered by structural weaknesses, such as excessive government regulation, one of the lowest birth rates anywhere and a pattern of developing small businesses instead of giant corporations without giving them enough help.

Taiwan’s economic position has also weakened in relation to some of its bigger, faster-growing neighbors, especially South Korea.

Like South Korea, Taiwan has always been one of the so-called Asian tiger economies. But in recent years, with the rise of global powerhouse companies such as Samsung and Hyundai, Korea’s economy has been far more dynamic, leaving many Taiwanese to wonder where they have gone wrong.

Even Taiwan’s cultural minister, Lung Ying-tai, speaks wistfully about the wave of Korean dramas and music that has hit Taiwan and other parts of Asia.

“The Korean model is very much talked about here,” she told a group of visiting American journalists recently.

Nonetheless, many Taiwanese see China as the biggest, most immediate issue.

Lin Chu-Chia, deputy minister of Taiwan’s mainland affairs council, says there are 90,000 cases of Taiwanese investments in China. By comparison, he could count only 400 investments from the mainland into Taiwan, mostly restaurants, wholesalers and the like.

One of Taiwanese biggest companies, Foxconn Technology, which assembles Apple products, employs hundreds of thousands of workers in China.

Although Taiwanese companies include such names as bicycle maker Giant and computer producer Asus, the mainstay of the island’s exports has been semiconductor chips and other brand-less parts that go into the production of other goods.

Increasingly, Chinese companies have been making these materials themselves instead of importing them from Taiwan, said Katrina Ell, an economist who follows Taiwan for Moody’s Analytics from its Sydney, Australia, office.

The immediate target of the student protests was a services trade pact with Beijing, which many of the protesters say Ma’s government reached without proper oversight. They want it scrapped.

Ma, who took office in 2008 determined to reverse years of tense relations with China and boasts of signing 21 agreements with Beijing, has taken a conciliatory approach to the protests.

On Thursday, his Cabinet approved a draft bill for closer monitoring and greater transparency of agreements between Taiwan and China, addressing a key demand from protesters.

Whether that will be enough to quiet the demonstrations isn’t clear, and it remains to be seen how long the opposition Democratic Progressive Party will fight the pact. On Saturday, hundreds of students and supporters were marching through the dense streets of Banqiao district demanding the recall of some of Ma’s party allies, according to local news accounts.

Ma has insisted that the deal to liberalize trade in banking, health care and other services with China is critical for Taiwan’s growth and credibility, and for its efforts to keep up with competitors.

Ma has said the new trade agreement will be a boon for Taiwan’s economy, citing an independent study stating that it would create up to 12,000 jobs in the island.

If the legislature doesn’t sign off on the accord, he warned, it would hurt Taiwan’s chances of joining larger pacts like the Trans-Pacific Partnership, a free-trade deal that is being negotiated among a dozen Pacific Rim nations, including the U.S. and Japan but not China.

“There is a feeling you have to do it with China first before you can do it with the others,” said Richard C. Bush III, director of northeast Asian studies at the Brookings Institution.

Joining the Trans-Pacific Partnership would help Taiwan diversify its economy and provide a counterweight to China. Besides better access to the U.S., it would create more opportunities in Canada and Australia, among other places, giving Taiwan “an opening to move further up the value chain and develop more of its branded goods and services,” Bush wrote in a recent paper with Brookings colleague Joshua Meltzer.

Still, most analysts reckon that it would take at least several years before Taiwan could join, given the technical and political hurdles.

For now, Beijing is carefully watching the student protests. Some provincial mainland governments were said to have withdrawn plans to engage in some cross-strait exchanges scheduled this month. And a shelving of the trade services agreement could jeopardize, or at least delay, plans to forge pacts on commodity products and dispute resolution.

Where China is concerned, there is no easy answer for Taipei.

“Taiwan is having to play a calculated bet, and President Ma has one way,” Bush said of the policy of engagement. The other way is to take a harder line with Beijing, he said, adding: “There’s no sure-fire winner.”